Denied Access to Inspect the Books and Records of the Non-Profit HOA Corporation
I am an owner/ investor in a planned community organized as a non-profit corporation for the purpose of securing the value of our real estate investment. Membership is mandatory. The Board has awarded vendor contracts to a landscaping business owned by two members of the Board. One of the landscape vendors holds the position of Treasurer. The Board has no internals controls in place to oversee the invoicing and payment to the landscape vendor- essentially the Treasurer of the HOA is writing checks to himself! I requested access to the books and records of the association and the Board’s delegate (a management company employee) has refused to allow me to inspect the invoices. The delegate issued copies of “documents” and “receipts” that are not certified and are not receipts. Board members including the Treasurer remain non-communicative leaving the matter to this uneducated management company employee. This has been going on since November 9, 2022 when I first requested access and stated my purpose. Is it worth paying the $500 to bring an action via the State real estate channel, or is it better to retain an attorney and pursue access to records via court order?
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Lora,
I cannot tell you how many times I hear similar stories from homeowners from across this state. Existing law that for any contract that clearly represents a conflict of interest of any board member they must declare that conflict prior to the discussion and vote by the board. If they fail to declare the conflict of interest it nullifies any contract put in place without that declaration. Current law already requires the association to provide access to any association record within 10 days of that request. All invoices from contractors are association records. Get the minutes of the meeting where the board awarded the contract for landscaping to a company owned by board members. If no record of a declared conflict of interest by the affected board members exist in that official record of the meeting , you have a legitimate cause for action. I would definitely petition the ADRE in the dispute resolution process on the two separate and specific violation of law. ($1,000).
If you want to go in that direction, contact me separately at azhoatruth@gmail.com and I’ll help you frame the petition, the choice of which avenue you take is yours alone. You can pay $500 per issue with ADRE or $350 to $400 per hour for an attorney to file a claim in Justice or Superior Court.
I’ve introduced legislation this session SB-1387 to strengthen the conflict-of-interest laws and provide for the duties of the boards to their communities.
Dennis
Hi, Dennis. Glad I found mention of contracts here. For vendor or management company contracts, our CCR says we can have a 1 year term only. Is there a state law for this too or do we just go by our association rules? Does the board have to vote on contracts in a meeting, when they set up a new one or when they renew a contract for one more year? For “one off” repairs or fixes on buildings or units, this doesn’t require a contract, right, just a vote to approve the work as bid, right?
PJ,
State law is silent on this issue, and community documents establish the standards for each community. As for what has to be done in an open meeting or not, If the association board takes any action except for emergency action, it must be taken at an open meeting. So, if the board wants to make a motion to renew an existing contract, it must be taken in an open meeting. Many management and other agreements allow for automatic renewal under the terms of the contract unless the board votes to terminate that contract. In those cases, the renewal can occur without an action of the board, but if the board wants to terminate that contract, it will have to vote on that issue in an open meeting first.
As for one-off services without a contract, the board would have to approve the expenditure in an open meeting.
Dennis
I am having a similar problem, Association’s attorneys claims “The Association declines to produce any documents related to your requests for invoices from various vendors or other contractors. Such third-party invoices are not “records of the Association,” and the Association has no obligation under Arizona law to produce or disclose third-party invoices. See A.R.S. § 10-11601. For this reason, the Association declines to produce any of the invoices you requested for the past 12 or 24 months.”
I have a hearing coming up in a little over a week. Any evidence or advice I can present to the ALJ to make things very clear. It should be clear already, but I feel like this ALJ is against me since I don’t have an attorney and they keep quashing me subpoenaing the HOA treasurer… I have 33-1805(A) and 10-11601(F) and the plain text is very clear. The HOA has also just blatantly ignored any of my requests for documents since. So will be more hearings in the future…
Any guidance and help is appreciated. Thanks!
Chad,
Your associations response is total BS. The law says all financial records and that would include and contracts the association engages in and the billing invoices from those contracts. Since invoices should be approved prior to payment the association must act on every invoice and that is a clear record of the association. Without an invoice the association could distribute money to anyone they wanted and for any reason. There is a fiscal responsibility and duty of the board to act prudently in managing and expending association resources. The detailed review and approval for pay out of every invoice or bill to the association is integral to that prudency.
As for ALJ hearings that tribunal is limited to review of compliance to state statute for planned communities and the governing documents, so reference to existing case law or common law provisions of the Restatement are all irrelevant as will be any provision of title 10 to this case. !805 is very broad and while the association attorneys like to try and use the non-profit statutes to authorize limiting records access, the truth is those provisions cannot be used by the ALJ in their decision-making process by the law that authorizes all of these cases. If the association tries to use title 10 you should first object to that reference as it is irrelevant to your petition and inspite of that then you can then specifically used the language of that statute to your benefit.
While bills, invoices or canceled checks are not part of the accounting ledger the records request law is not limited to the accounting ledgers.
Dennis
Dennis
Thank you, Dennis! Will let you know how it goes, if the ALJ is fair, I think it should be an easy win. You ever seen a summary judgement in a OAH case? I might do a motion for summary judgement since it’s more than clear, but IDK if that is a thing.
The assumption that any ALJ is in all cases fair or even right is a stretch at best. As for summary judgement I’ve never seen an ALJ case that entertained summary judgement. You bear the burden of proof not the judge. It up to you to argue and present the facts that the association clearly violated the law in denying access to legitimate association records.
Because of that no plaintiff has ever been granted summary judgement before an ALJ.
Dennis
I think the HOAs current strategy is that since the house is in my wife’s trust with me and her as trustees that since she is the only grantor, she is the only owner. IDK if that has any validity, it’s just a Revocable Living Trust for estate planning not a deed trust or anything crazy. We both just have trusts to split things up since we had a business. I might need to just drop one and or have it revised to add me as a grantor, idk if their law interpretation is even valid for living trusts. Any ideas – hearing tomorrow!
Gotcha! Thank you very much!!!
Chad,
Avoid taking any rash or illogical actions. The association has a duty to treat all homeowners fairly and to act reasonably in the exercise of its discretionary authority, including rulemaking, design control, and enforcement. Based on what you have told me so far, the association’s rules related to the issues you face are neither reasonable nor fair. Unless there is a specific restriction related to these issues in the CC&Rs, the association has very little authority to create a new rule or restriction on your private property. And those they retain are based solely on issues that impact the property values of the community.
Rather than ranting and making irrational claims and accusations, you should try to simply remind the board of their duties and authority under Arizona Law. You can be assured that your board is not being provided that advice from their community manager or attorney.
If you wish, you have the right to enforce the law by filing a petition to ADRE.
Dennis
Not being rash by any means, just want to cover all my bases for the hearing this afternoon – it is from the HOA’s attorney, here’s what they wrote:
Thank you for providing the copy of the Trust Certificate. Although you and Mrs. xxx are both Trustees of the Trust, the CC&Rs define the Trustor (i.e., the Trustmaker, or person who makes the Trust) to be an “Owner,” not the Trustees. As noted in the Certification of Trust, the Trustmaker of the xxx Living Trust is wife. Therefore, wife is the Owner of the Lot within the Association (see also Section 6.1, CC&Rs (“Every Owner of a Lot…shall be a Member of the Association”).
Specifically, Article I, Section DD of the CC&Rs states, “‘Owner’ shall mean the record holder of legal title to the fee simple interest in any Lot or Parcel…If fee simple title in a Lot or Parcel is vested of record in a trustee pursuant to Arizona Revised Statutes 33-801 et seq., legal title shall be deemed to be in the trustor.” (Emphasis added). A copy of the CC&Rs is attached here for your reference.
You do not have standing to bring the petition with the Arizona Department of Real Estate. The DRE hears disputes between homeowners and homeowners’ associations only. See A.R.S. Section 32-2199.01(A). In light of this information, we would request that you withdraw the Petition pending with the OAH due to the lack of standing. As you noted – there is no reason to incur additional attorneys’ fees and costs at a Hearing, especially to raise this procedural issue.
If the Owner of the Lot (wife) would like to designate you in writing as her representative per A.R.S. Section 33-1805(A) in order to make records requests moving forward, please send confirmation of that designation to our office. Otherwise, you are not a Member of the Association and are not entitled to examine records of the Association under the statute at this time.
It’s a Revocable Living Trust for retirement planning, not a deed trust, etc. The HOA attorney likes to misinterpret the actual laws, so not sure if they are full of BS. There’s a lot of trust laws in AZ, so I can’t really figure it out.
Chad,
While what the attorney claimed is correct at least on how membership is established in a trust ownership for a property. But the actual language of the trust document is the key to this entire issue. If both you and your wife are identified as the trustees of the trust than you are both co-members of the association. But if your wife is identified as the trustee and you are provided survival interest than she alone is the member, and you do not assume ownership until she passes. If you are both owners than you both have records request rights, if not than the owner of record can authorize another person to request records on their behalf. If you are not an owner than you cannot file a petition against the association to ADRE.
Dennis
Thank you Mr. Legere for clarifying, we are both trustees on that living trust. Just got done with the hearing. The judge at the end stated she was not going to even consider standing as that was not brought up prior to the hearing, etc. I think it went well, basically the HOA attorney is hanging their hat on the argument that invoices are not records of the association and that the only financial records they are required to keep are summary statements of account as they post on the community website. The attorney keeps also forgetting the “and other records of the association” part of the law. I asked, and they do retain copies of invoices. So we shall see. Hopefully a win on my side.
On a side note, I asked the board treasurer about who on the board reviews invoices for payment – NOBODY. The board rarely sees invoices – they just approve contracts, etc. So the kicker is, nobody is monitoring invoices for discrepancies. And guess who processes the invoices – the management company, guess who does the accounting – the management company. Seems very suspicious and quite concerning to me as a conflict of interest. Those who create the financials shouldn’t be in charge of approving and paying invoices IMO.
I really appreciate your time and help!
The exact language in the law states “all”. Not some fabricated presumption and claim of an association’s attorney to defend their client’s direct violation of the law. All means All. Invoices from which any association expenditure is based is a financial record of the association required to be maintained and made available upon request, otherwise anyone could embezzle any associations funds and there would be no record of what that expenditure was for or if it was appropriate at all.
I will say that both ALJ’s and Superior Court Judges have succumbed to the totally baseless argument of association attorneys especially in per se cases where their lack of knowledge allows them to simply defer to the so-called expert attorney that practice HOA law.
The board is the sole authority over the expenditure of all and any association funds. While they are free to assign that task to community managers based on approved contracts and budgets, they still have a responsibility to review all financial transactions at least after the fact. Failure of associations boards to actually do this has resulted in case after case of individuals embezzling millions of dollars from association funds over many years.
Dennis
Dennis
Thank you! I appreciate all your info! I told my neighbor to avenge my death as my wife thinks I am uncovering some mafia stuff 😀 Thanks again! I’ll let you know the case order once it’s done, ALJ said she is behind, so I expect 20-30 days.
Wanted to update, I did win the hearing. Already got the $500 reimbursement from the HOA and they are starting to send the documents I requested. They are being difficult on sending all the documents at this point. Not sure incompetence or planned… I submitted a new complaint as well, and they are complying with that before the hearing, so I expect that to go well. One question, they have a $500 fine for starting a landscaping or home change (paint, etc) before getting ARC approval. I was under the impression, they could only fine you if it was something that you could correct and get the fine removed? Seems like this one is a fine, but no way to un-start a project lol. Thanks again for all your help!!!
Chad,
Well done. If the association fails to comply with the full extent of the ALJ order, the individuals involved could face contempt of court charges, which can have significant consequences. To pursue Contempt of Court charges, the proper venue would be the Superior Court and not the ALJ.
As for the design review process. Most CC&Rs require prior approval of the ARC before making any modification to the exterior of your home or property. The simple act of failing to do so is a direct violation of the CC&Rs and is subject to fines, even if what you did to your home would have been accepted by the ARC. It would be a terrible precedent for any association to allow any homeowner to submit an ARC request after the fact, as doing so would simply negate the entire process of prior approval. That being said, the common law allows very little flexibility for any association to establish rules or even design control guidelines that exceed the specific restrictions of the declaration. Those rules and design controls must be both reasonable and directly related to protecting the property values of communities. 95% of all association rules and design guidelines will directly violate this limitation if challenged. For example, if your association limits the paint colors that you can paint your home without a specific restriction identified in the CC&Rs to that effect, those painting limitations are illegal and invalid. The shades of paint have no impact on property value. They can say that you cannot paint your home purple or flame orange, but they cannot tell you that you can only paint your home these specific colors.
Dennis